Monday, 3 July 2017

The Saga of John Law and Richard Cantillon

For all the folly and plain bad thinking at work in the world - all of which works to hinder wealth creation - there is one special breed of man who can offer us hope: that of the Entrepreneur.

Holding out for a hero

In our work today, we are constantly confronted with the struggle to determine who exactly it is who is prospering honestly and who only seems to be doing well.
The first, of course, might be a suitable man in whom to invest – assuming that the price for a participation in his endeavours is right and that he, or his current shareholders, needs our money in the first place.

In contrast, the second type – the apparent success story - is to be avoided at all costs, either because his boat is simply being borne higher (along with all the others on the river) on a rising tide of hot money - or because he is riding on the coat-tails of government interference in the free market.
In this latter case, he is unlikely to be adding any definable real value even while he still manages to retain his patrons’ support: all too often he is merely a kind of legalized pirate. Not infrequently, he is involved in outright corruption, to boot.

More to the point, we can never be wholly sure that he has a genuine underlying business, at all. Our risk is, therefore, that, if he falls out of favour with the incumbents - or they with the voters - he may be done for and, with him, our clients’ money, too.

In a curious historical coincidence, we find that there was a personification of this difference nearly three hundred years ago, right at the point where the modern age of finance began.
For, in the Paris of the 1720s, there took place a duel – a contest of both wills and intellects - between a man who represented the destructive influences of an inflationism wedded to government intervention, and his antagonist, who exemplified the constructive energies of individual acumen and worthy self-reliance.

The former was John Law; a man who can lay a justifiable claim to being the father of modern central banking, even though his Banque Royale was neither the first such institution, nor was it long to survive Law’s eventual disgrace.

To avoid further preamble, Law – a Scots émigré, a fugitive from English justice, and a truly legendary gambler – persuaded himself that through a programme of issuing bank notes he could regenerate a French economy wracked with debt and default, the bitter legacy of the dead Sun King’s vainglory.